Citizens Deal Needs Thorough Review

Insurance regulators are always rightly concerned when an insurance company pays for reinsurance backing its losses, which does not include full risk transfer.

By ALEX SINK

The recent Citizens Property Insurance deal with start-up insurance company Heritage must be stopped immediately and given thorough review by our elected officials who appoint the Citizens board members. These officials include Gov. Rick Scott, state Chief Financial Officer Jeff Atwater, Speaker of the House Will Weatherford and Senate President Don Gaetz.As CFO for Florida from January 2007 to January 2011, I spent a great deal of time working with many constituent groups to find ways to balance the need for Floridians to obtain affordable home insurance in the face of the potentially huge assessments that we could face from Citizens and the Florida Hurricane Catastrophe Fund after the next big hurricane.Recently, I received my property-insurance notification and was reminded that we are still being charged assessments from both Citizens and the Catastrophe Fund for the 2004-2005 storms. The recent "deal" that was approved by the Citizens board of governors raises five major concerns.First, we all agree that reducing the size of the state-run insurer and building a vibrant and competitive private marketplace should be our continuing goal. Rather than making one-off sweetheart deals with a nine-month-old startup insurer, the right way to shrink Citizens is to establish a dynamic RFP process and invite all private insurers to present their best proposals for depopulation. This process would be open and transparent and receive thorough vetting from all interested parties.Second, in my experience serving on multiple public, private and nonprofit company boards, and as a former member of the Florida Cabinet, I have never seen a business transaction approved by a minority of board members. This Heritage deal was "approved" by only three of the eight Citizens board members. This $52 million transaction should require a majority of five of the eight board votes. If those votes can't be gathered (because of absences or abstentions) then the deal can't get done. I strongly recommend that the board chair call for a thorough review of the operating policies of the board immediately. In fact, the four elected officials who each appoint two Citizens board members should demand this action.Third, I have a concern as to whether anyone at any level of state government really knows whether this deal is in compliance with Florida laws relating to depopulating Citizens policies. The laws specifically require that any takeout bonus be limited to $100 for each policy that an insurer removes. The Office of Insurance Regulation should thoroughly review and issue an opinion on the true amount of bonus and subsidy being provided to Heritage.Fourth, I am also alarmed that this special, unique deal might include an invalid reinsurance contract. Insurance regulators are always rightly concerned when an insurance company pays for reinsurance backing its losses, which does not include full risk transfer. In effect, they have the ability to cherry-pick policies for which there have been no claims reported. Heritage is receiving millions of dollars in this transaction through questionable use of a reinsurance contract.Finally, it has been widely reported that this startup company made significant political contributions to Gov. Scott's campaign fund as well as the Republican Party just weeks before three Citizens board members voted to approve this deal. The timing of the reported briefings of the governor and CFO around this transaction, the political payments received by the governor and the Republican Party of Florida and the ultimate approval of this sweetheart deal not offered to other insurers raise serious questions.I believe that we must set an even playing field for the Florida insurance marketplace. We will not attract sorely needed capital to this market if insurers don't understand the rules of the game, particularly when state leaders create the perception that the rules are rigged.Our state, its citizens and more than 5 million homeowners searching for affordable property insurance deserve so much more.Our governor, CFO, speaker and Senate president appoint the Citizens board members. They must demand that their board appointees have the time, the information and the courage to make fair decisions on behalf of the millions of Floridians who have an interest in a strong and competitive insurance marketplace.This deal, and any others like it, must be stopped.[ Alex Sink of Tampa was the 2010 Democratic candidate for governor and was Florida chief financial officer from 2007 to 2011. ]